SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
-
ACT OF 1934
For the quarterly period ended October 31, 2001

                                       or
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from      to

                         Commission File Number 0-23007

                            ATSI COMMUNICATIONS, INC.
             (Exact name of registrant as specified in its charter)


                Delaware                                       74-2849995
      (State or other jurisdiction                           (IRS Employer
    of incorporation or organization)                     Identification No.)


                        6000 Northwest Parkway, Suite 110
                            San Antonio, Texas 78249
                                 (210) 547-1000

    (Address, including zip code, of registrant's principal executive offices
                   and telephone number, including area code)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
                                              -

--------------------------------------------------------------------------------
      The number of shares outstanding of the registrant's common stock at
                        December 17, 2001 was 80,110,590
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------



                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                          QUARTERLY REPORT ON FORM 10-Q
                     FOR THE QUARTER ENDED OCTOBER 31, 2001

                                      INDEX



Part I.   FINANCIAL INFORMATION
                                                                                                            Page
                                                                                                            ----
                                                                                                         
Item 1.  Interim Consolidated Financial Statements (Unaudited)

         Consolidated Balance Sheets as of July 31, 2001 and October 31, 2001............................     3
         Consolidated Statements of Operations for the Three Months Ended October 31, 2000
          and 2001.......................................................................................     4
         Consolidated Statements of Comprehensive Loss for the Three Months Ended
         October 31, 2000 and 2001.......................................................................     5
         Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2000
          and 2001.......................................................................................     6
         Notes to Consolidated Financial Statements .....................................................     7

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations ..........    11

Part II. OTHER INFORMATION

Item 2.  Change in Securities and Use of Proceeds.......................................................     18

Item 6.  Exhibits and Reports on Form 8-K...............................................................     18


                                        2



                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (In thousands, except share information)



                                                                                               July 31,        October 31,
                                                                                                2001              2001
                                                                                           ---------------  ---------------
                                                                                                              (unaudited)
                                                                                                      
ASSETS
------
CURRENT ASSETS:
 Cash and cash equivalents                                                                 $          103   $          339
 Accounts receivable, net of allowance of $ 92 and $ 115, respectively                              2,667            2,080
 Inventory                                                                                             75               97
 Prepaid expenses and other assets                                                                    786              858
                                                                                           --------------   --------------
     Total current assets                                                                           3,631            3,374
                                                                                           --------------   --------------

PROPERTY AND EQUIPMENT (At cost):                                                                  21,784           21,745
 Less - Accumulated depreciation and amortization                                                 (11,993)         (12,858)
                                                                                           --------------   ---------------
     Net property and equipment                                                                     9,791            8,887
                                                                                           --------------   --------------

OTHER ASSETS, net
 Goodwill, net                                                                                      4,856            4,816
 Concession license, net                                                                            4,208            4,153
 Trademarks, net                                                                                      390              345
 Other assets                                                                                         487              491
                                                                                           --------------   --------------
     Total assets                                                                          $       23,363   $       22,066
                                                                                           ==============   ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
 Accounts payable                                                                          $        4,714   $        5,062
 Accrued liabilities                                                                                2,528            3,198
 Current portion of notes payable                                                                     677              628
 Current portion of obligations under capital leases                                                4,938            4,792
 Deferred revenue                                                                                     119              155
                                                                                           --------------   --------------
     Total current liabilities                                                                     12,976           13,835
                                                                                           --------------   --------------

LONG-TERM LIABILITIES:
 Obligations under capital leases, less current portion                                               123              101
 Other long-term liabilities                                                                          128              132
                                                                                           --------------   --------------
                                                                                                      251              233
                                                                                           --------------   --------------

MINORITY INTEREST                                                                                     351              351

COMMITMENTS AND CONTINGENCIES:

REDEEMABLE PREFERRED STOCK
 Series D Cumulative Preferred Stock, 3,000 shares authorized, 1,642 shares issued and
  outstanding at July 31, 2001 and October 31, 2001, respectively                                   1,302            1,327
 Series E Cumulative Preferred Stock, 10,000 shares authorized, 3,490 shares issued and
  outstanding at July 31, 2001, 3,140 shares issued and outstanding at October 31, 2001             2,227            1,907

STOCKHOLDERS' EQUITY:
 Preferred stock, $0.001 par value, 10,000,000 shares authorized,
  Series A Cumulative Convertible Preferred Stock, 50,000 shares authorized, 4,370 shares
  issued and outstanding at July 31, 2001 and October 31, 2001, respectively                            -                -
  Series F Cumulative Convertible Preferred Stock, 10,000 shares authorized, 9,210 shares
  issued and outstanding at July 31, 2001 and October 31, 2001, respectively                            -                -
  Series G Cumulative Convertible Preferred Stock, 42,000 shares authorized, 6,500 shares
  issued and outstanding at July 31, 2001 and October 31, 2001, respectively                            -                -
 Common stock, $0.001 par value, 200,000,000 shares authorized, 77,329,379
  issued and outstanding at July 31, 2001
  80,088,090 issued and outstanding at October 31, 2001                                                77               80
 Additional paid in capital                                                                        58,105           58,565
 Accumulated deficit                                                                              (52,503)         (54,776)
 Warrants outstanding                                                                               1,835            1,835
 Deferred compensation                                                                                (12)               -
 Other comprehensive loss                                                                          (1,246)          (1,291)
                                                                                           --------------   ---------------
     Total stockholders' equity                                                                     6,256            4,413
                                                                                           --------------   ---------------

     Total liabilities and stockholders' equity                                            $       23,363   $       22,066
                                                                                           ==============   ==============



   The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       3




                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                    (In thousands, except per share amounts)
                                   (unaudited)


                                                         Three months ended October 31,
                                                  ---------------------------------------------
                                                          2000                    2001
                                                  ---------------------   ---------------------
                                                                    
OPERATING REVENUES:
  Telco services

      Carrier services                                          $3,645                  $8,975
      Network services                                             707                     664
      Retail services                                            1,725                   1,725
  Internet e-commerce                                            1,422                   1,239
                                                  --------------------    --------------------

     Total operating revenues                                    7,499                  12,603
                                                  --------------------    --------------------

OPERATING EXPENSES:
  Cost of services                                               5,528                   9,182
  Selling, general and administrative                            5,221                   3,831
  Bad debt expense                                                  51                      26
  Depreciation and amortization                                  1,150                   1,126
                                                  --------------------    --------------------

     Total operating expenses                                   11,950                  14,165
                                                  --------------------    --------------------

Operating loss                                                  (4,451)                 (1,562)

OTHER INCOME(EXPENSE):
  Interest income                                                   28                      18
  Other income (expense), net                                      197                     (33)
  Interest expense                                                (433)                   (524)
                                                  --------------------    --------------------

     Total other income (expense)                                 (208)                   (539)
                                                  --------------------    --------------------

LOSS BEFORE INCOME TAX EXPENSE                                  (4,659)                 (2,101)

INCOME TAX EXPENSE                                                  66                      27

MINORITY INTEREST INCOME                                            41                       -

NET LOSS                                                       ($4,684)                ($2,128)

LESS: PREFERRED DIVIDENDS                                         (887)                   (145)
                                                  --------------------    --------------------

NET LOSS TO COMMON STOCKHOLDERS                                ($5,571)                ($2,273)
                                                  ====================    ====================

BASIC AND DILUTED LOSS PER SHARE                                ($0.08)                 ($0.03)
                                                  ====================    ====================

WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                                           67,703                  78,086
                                                  ====================    ====================


        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                        4




                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                 (In thousands)
                                   (unaudited)


                                                         For the three months ended October 31,
                                                     ------------------------------------------------
                                                            2000                         2001
                                                     -------------------          -------------------
                                                                            
Net loss to common stockholders                                 ($5,571)                     ($2,273)

     Other comprehensive income (loss), net of tax:

     Foreign currency translation adjustments                      ($40)                        ($45)
                                                     -------------------          -------------------

Comprehensive loss to common stockholders                       ($5,611)                     ($2,318)
                                                     ===================          ===================



        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       5




                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (unaudited)


                                                                      Three months ended October 31,
                                                               ---------------------------------------------
                                                                       2000                    2001
                                                               ---------------------   ---------------------
                                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                  ($4,684)                ($2,128)
  Adjustments to reconcile net loss to net cash used in
   operating activities-
     Depreciation and amortization                                            1,150                   1,126
     Amortization of debt discount                                              122                       -
     Deferred compensation                                                      181                      12
     Minority interest                                                          (39)                      -
     Provision for losses on accounts receivable                                 51                      26
     Changes in operating assets and liabilities
       Decrease in accounts receivable                                          902                     559
       Increase in other assets, current and long-term                         (185)                    (89)
       Increase in accounts payable                                           1,389                     509
       Increase in accrued liabilities                                          466                     442
       Increase (Decrease) in deferred revenue                                   (7)                     36
                                                               --------------------    --------------------
Net cash (used in) provided by operating activities                            (654)                    493
                                                               --------------------    --------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                          (296)                   (148)
                                                               --------------------    --------------------
Net cash used in investing activities                                          (296)                   (148)
                                                               --------------------    --------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of debt                                               315                      11
   Decrease from advanced funding arrangements                                   66                       -
   Payments on debt                                                            (358)                    (43)
   Capital lease payments                                                      (211)                   (169)
   Proceeds from issuance of preferred stock, net
    of issuance costs                                                         2,306                      (8)
   Proceeds from issuance of common stock, net
    of issuance costs                                                            81                     100
                                                               --------------------    --------------------
Net cash provided by (used in) financing activities                           2,199                    (109)
                                                               --------------------    --------------------

Net increase in cash                                                          1,249                     236

Cash, beginning of period                                                     1,550                     103
                                                               --------------------    --------------------

Cash, end of period                                                          $2,799                  $  339
                                                               ====================    ====================



              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       6



                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                    (In thousands, except per share amounts)

     1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements, which include
the following subsidiaries: ATSI-Delaware, ATSI-Canada, ATSI-Texas, ATSI-Mexico,
ATSI-COM, Computel, ATSI de CentroAmerica, Telespan, Sinfra and a majority
ownership in GlobalSCAPE have been prepared in accordance with Rule 10-01 of
Regulation S-X, "Interim Financial Statements," and accordingly do not include
all information and footnotes required under accounting principles generally
accepted in the U.S. for complete financial statements. In the opinion of
management, these interim financial statements contain all adjustments, without
audit, necessary to present fairly the consolidated financial position of ATSI
and its subsidiaries ("ATSI" or "the Company") as of July 31, 2001 and October
31, 2001, the results of their operations for the three months ended October 31,
2000 and 2001, comprehensive loss for the three months ended October 31, 2000
and 2001, and cash flows for the three months ended October 31, 2000 and 2001.
All adjustments are of a normal recurring nature. All significant intercompany
balances and transactions have been eliminated in consolidation. It is
recommended that these interim consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes thereto for
the year ended July 31, 2001 included in the Company's annual report on Form
10-K filed with the SEC on October 30, 2001. Certain prior period amounts have
been reclassified for comparative purposes. The results of operations for any
interim period are not necessarily indicative of the results to be expected for
the full year.

     In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142, which supercedes APB Option No. 17, "Intangible Assets"
provides financial accounting and reporting for acquired goodwill and other
intangible assets. While SFAS 142 is effective for fiscal years beginning after
December 15, 2001, early adoption is permitted for companies whose fiscal years
begin after March 15, 2001. SFAS 142 addresses how intangible assets that are
acquired individually or with a group of assets should be accounted for in
financial statements upon their acquisition as well as after they have been
initially recognized in the financial statements. While the Company is not yet
required to adopt SFAS 142, it believes the adoption will not have a material
effect on the financial condition or results of the Company unless at some
future time it is determined that an impairment of its intangible assets exists.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143, which amends SFAS No. 19, "Financial
Accounting and Reporting by Oil and Gas Producing Companies" is applicable to
all companies. SFAS 143, which is effective for fiscal years beginning after
June 15, 2002, addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset, except for
certain obligations of lessees. As used in this Statement, a legal obligation is
an obligation that a party is required to settle as a result of an existing or
enacted law, statute, ordinance, or written or oral contract or by legal
construction of a contract under the doctrine of promissory estoppel. While the
Company is

                                        7



not yet required to adopt SFAS 143, it believes the adoption will not have a
material effect on the financial condition or results of the Company.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets." SFAS No. 144, which supercedes
SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of" and amends ARB No. 51, "Consolidated
Financial Statements," addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 is effective for fiscal
years beginning after December 15, 2001, and interim financials within those
fiscal years, with early adoption encouraged. The provisions of this Statement
are generally to be applied prospectively. As of the date of this filing, the
Company is still assessing the requirements of SFAS 144 and has not determined
the impact the adoption will have on the financial condition or results of the
Company.

     2. FUTURE OPERATIONS

     The consolidated financial statements of the Company have been prepared on
the basis of accounting principles applicable to a going concern. For the period
from December 17, 1993 to October 31, 2001, the Company has incurred cumulative
net losses of approximately $54.8 million. Further, the Company has a working
capital deficit of approximately $10.5 million at October 31, 2001. We have
limited capital resources available to us, and these resources may not be
available to support our ongoing operations until such time as we are able to
continuously generate positive cash flows from operations. There is no assurance
we will be able to achieve future revenue levels sufficient to support
operations or recover our investment in property and equipment, goodwill and
other intangible assets. These matters raise substantial doubt about our ability
to continue as a going concern. Our ability to continue as a going concern is
dependent upon the ongoing support of our stockholders and customers, our
ability to obtain capital resources to support operations and our ability to
successfully market our services.

     We are likely to require additional financial resources in the near term
and could require additional financial resources in the long-term to support our
ongoing operations. We plan on securing funds through equity offerings and
entering into lease or long-term debt financing agreements to raise capital.
There can be no assurances, however, that such equity offerings or other
financing arrangements will actually be consummated or that such funds, if
received, will be sufficient to support existing operations until revenue levels
are achieved sufficient to generate positive cash flow from operations. If we
are not successful in completing additional equity offerings or entering into
other financial arrangements, or if the funds raised in such stock offerings or
other financial arrangements are not adequate to support us until a successful
level of operations is attained, we have limited additional sources of debt or
equity capital and would likely be unable to continue operating as a going
concern.

     3. ACQUISITIONS

     In October 2001, the Company completed the purchase of Telscape's
Houston-based Teleport assets for approximately $50,000 in cash, plus associated
professional fees. The assets purchased include Telscape's Houston-based
satellite and telecommunications equipment, its multinational customer base and
accounts receivable. The purchase does not include any of Telscape's assets
owned by foreign subsidiaries or affiliates. We are in the process of
integrating these new assets, which involves billing customers and re-deploying
some of the equipment to its existing operations.

                                        8



     4. PREFERRED STOCK

     In September 2001, the holder of the Series E Preferred Stock converted 350
of the 3,490 shares outstanding and accumulated interest into common stock
resulting in the issuance of 1,177,498 shares of common stock. In accordance
with the terms of the Investment Option of the Series E Preferred Stock, the
holder purchased an additional 493,422 shares of common stock for $150,000.

     5. SEGMENT REPORTING

     In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information," which establishes standards for
reporting information about operating segments in annual and interim financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. In an attempt to identify our reportable operating segments, we
considered a number of factors or criteria. These criteria included segmenting
based upon geographic boundaries only, segmenting based on the products and
services provided, segmenting based on legal entity and segmenting by business
focus. Based on these criteria we have determined that we have three reportable
operating segments: (1) U.S. Telco; (2) Mexico Telco; and (3) Internet
e-commerce. Our Internet e-commerce subsidiary, GlobalSCAPE, Inc. and its
operations can be differentiated from the telecommunication focus of the rest of
ATSI. Additionally, we believe that our U.S. and Mexican subsidiaries should be
separate segments even though many of the products are borderless. Both the U.S.
Telco and Mexican Telco segments include revenues generated from Retail Services
and Network Services. Our Carrier Services revenues, generated as a part of our
U.S. Telco segment, are the only revenues not currently generated by both the
U.S. Telco and Mexico Telco segments. We have included the operations of
ATSI-Canada, ATSI-Delaware and all businesses falling below the reporting
threshold in the "Other" segment. The "Other" segment also includes intercompany
eliminations.

     We have used earnings (loss) before interest, taxes, depreciation and
amortization (EBITDA) in our segment reporting as it is the chief measure of
profit or loss used in assessing the performance of each of our segments.



                                                                      For the three months ended
                                                                    October 31,         October 31,
                                                                       2000                2001
          U.S. Telco
          ------------------------------------------------------------------------------------------
                                                                                
          External revenues                                        $  4,451,269       $ 9,477,354
          Intercompany revenues                                    $    528,510       $   146,183
                                                                   ------------       -----------
                           Total revenues                          $  4,979,779       $ 9,623,537
                                                                   ============       ===========

          Earnings (loss) before interest, taxes, depreciation and
          amortization (EBITDA)                                     ($2,723,916)        ($269,883)

          Operating loss                                            ($3,312,190)        ($706,541)

          Net loss                                                  ($3,399,965)        ($797,526)

          Total assets                                             $ 16,319,304       $17,065,392


                                       9




         Mexico Telco

         --------------------------------------------------------------------------------
                                                                      
         External revenues                                  $  1,625,901     $  1,886,740
         Intercompany revenues                              $    507,246     $    456,191
                                                            ------------     ------------
                             Total revenues                 $  2,133,147     $  2,342,931
                                                            ============     ============

         EBITDA                                            ($    543,831)   ($    305,166)

         Operating loss                                    ($    985,117)   ($    852,658)

         Net loss                                          ($  1,161,156)   ($  1,336,263)

         Total assets                                       $ 15,570,474     $ 12,271,247

         Internet e-commerce
         --------------------------------------------------------------------------------
         External revenues                                  $  1,421,833     $  1,238,805
         Intercompany revenues                                         -                -
                                                            ------------     ------------
                             Total revenues                 $  1,421,833     $  1,238,805
                                                            ============     ============

         EBITDA                                            ($     33,020)    $    138,583

         Operating loss                                    ($    153,005)   ($      2,741)

         Net loss                                          ($    231,534)   ($        124)

         Total assets                                       $  1,983,960     $  1,562,338

         Other
         ---------------------------------------------------------------------------------
         External revenues                                             -                -
         Intercompany revenues                             ($  1,035,756)   ($    602,374)
                                                            ------------     -------------
                             Total revenues                ($  1,035,756)   ($    602,374)
                                                            ============     =============

         EBITDA                                                        -                -

         Operating loss                                                -                -

         Net income (loss)                                  $    109,028     $      5,800

         Total assets                                      ($  7,175,434)   ($  8,833,441)

         Total
         --------------------------------------------------------------------------------
         External revenues                                  $  7,499,003     $ 12,602,899
         Intercompany revenues                                         -                -
                                                            ------------     ------------
                             Total revenues                 $  7,499,003     $ 12,602,899
                                                            ============     ============

         EBITDA                                            ($  3,300,767)   ($    436,466)

         Depreciation and Amortization                     ($  1,149,545)   ($  1,125,474)


                                       10




                                                                      
                 Operating loss                              ($4,450,312)     ($1,561,940)

                 Net loss                                    ($4,683,627)     ($2,128,113)

                 Total assets                               $ 26,698,304    $  22,065,536


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     SPECIAL NOTE: Certain Statements set forth below under this caption
constitute "forward-looking statements" within the meaning of the Securities
Act.

     The following is a discussion of the consolidated financial condition and
results of operations of ATSI for the three months ended October 31, 2000 and
2001. It should be read in conjunction with our Consolidated Financial
Statements, the Notes thereto and the other financial information included
elsewhere in the annual report on Form 10-K filed with the SEC on October 30,
2001.

General

     ATSI Communications, Inc. is an international carrier serving the rapidly
expanding communications markets in and between Latin America and the United
States. The Company's mission is to connect the Americas with exceptional
communications services guided by our core values that drive everything we do.
The Company's strategy is to become a dominant provider of services to
businesses and consumers in this American/Latin American corridor through the
deployment of a high quality, `next generation' network. Founded in 1993, the
Company generates its traffic from more than 650 retail points of presence
throughout Mexico, as well as from relationships with major carriers based in
the United States. ATSI carries the traffic generated from these sources over a
hybrid, redundant satellite and fiber-based ATM network between the United
States and Mexico, as well as a satellite-based network between the United
States, Costa Rica and El Salvador.

     The Company's current core focus today is on the communications corridor
between the United States and Mexico. Already one of the two largest
international communications corridors in the world, this corridor is growing
due to increasing phone density in Mexico and large-scale emigration of Mexicans
to the United States. The Company is uniquely positioned within this growing
market niche as one of only a handful of viable carriers, and the only operating
company whose focus is international services, as opposed to domestic services.

     Operationally, the Company's strength lies in its framework of licenses,
interconnection agreements and business relationships in Mexico, as well as in
its customer relationships and industry knowledge in the United States. The
Company has over 400 employees based in Mexico, and operates Mexican
subsidiaries with licenses that allow it to sell local and long distance
traffic, transport long distance traffic, and operate a network utilizing
packet-switching technology. Utilizing these strengths, the Company has
leveraged off of the networks of third parties to build a reliable customer
base, and has established its own international satellite and fiber-based
network to long haul consumer, corporate and carrier-generated traffic between
the U.S. and Mexico.

     We also own approximately 70% of GlobalSCAPE, Inc., which is rapidly
becoming a leader in

                                       11



electronic commerce of top Internet-based software, utilizing the Web as an
integral component of its development, marketing, distribution and customer
relationship strategies.

     As discussed in Note 5 to our consolidated financial statements we have
determined that we have three reportable operating segments: 1) U.S Telco; 2)
Mexico Telco; and 3) Internet e-commerce.

     Additionally, we have determined that our U.S. and Mexican subsidiaries
should be reported as separate segments although many of our products are
borderless and utilize the operations of entities in both the U.S. and Mexico.
Both the U.S. Telco and Mexico Telco segments include revenues generated from
Network Services and Retail Services. All of the carrier services revenues are
recorded in the U.S. Telco segment. GlobalSCAPE, Inc. and its operations are
accounted for exclusively as a part of the Internet e-commerce operating
segment.

     Our consolidated financial statements have been prepared assuming that we
will continue as a going concern. We have incurred losses since inception and
have a working capital deficit as of October 31, 2001. Additionally, we have had
recurring negative cash flows from operations with the exception of the quarters
ended January 31, 1998 and October 31, 2001. For the reasons stated in Liquidity
and Capital Resources and subject to the risks referred to in Liquidity and
Capital Resources, we expect improved results of operations and liquidity in
fiscal 2002. However, we cannot assure you that this will be the case.

Results of Operations

     The following table sets forth certain items included in the Company's
results of operations in dollar amounts and as a percentage of total revenues
for the three-month periods ended October 31, 2000 and 2001.



                                                                     Three Months Ended October 31,
                                                                      2000                     2001
                                                                      ----                     ----
                                                           $               %               $             %
                                                    -------------     -----------    -------------   --------
                                                                                         
              Operating revenues
              ------------------
              Telco services
                  Carrier services                        $3,645             49%           $8,975         71%
                  Network services                           707              9%              664          5%
                  Retail services                          1,725             23%            1,725         14%
              Internet e-commerce                          1,422             19%            1,239         10%
                                                    ------------      ----------     ------------    -------

              Total operating revenues                     7,499            100%           12,603        100%

              Cost of services                             5,528             74%            9,182         73%
                                                    ------------      ----------     ------------    -------

              Gross Margin                                 1,971             26%            3,421         27%

              Selling, general and administrative
              expense                                      5,221             69%            3,831         30%

              Bad debt expense                                51              1%               26          0%

              Depreciation and amortization                1,150             15%            1,126          9%
                                                    ------------      ----------     ------------    -------


                                       12




                                                                                        
              Operating loss                             (4,451)           (59%)          (1,562)       (12%)

              Other, net                                   (208)            (3%)            (539)        (5%)
                                                    -----------       ---------       ----------    -------

              Loss before income tax expense             (4,659)           (62%)          (2,101)       (17%)

              Income tax expense                            (66)            (1%)             (27)         0%

              Minority interest                              41              1%                -          0%

              Net loss                                   (4,684)           (62%)          (2,128)       (17%)

              Less: preferred stock dividends              (887)           (12%)            (145)        (1%)
                                                    -----------       --------        ----------    -------

              Net loss                                  ($5,571)           (74%)         ($2,273)       (18%)
                                                    ===========       ========        ==========    =======



Three Months ended October 31, 2001 Compared to Three Months ended October 31,
2000

     Operating Revenues. Consolidated operating revenues increased 68% between
periods from $7.5 million for the first quarter ended 2000 to $12.6 million for
the first quarter ended 2001. In response to the increasing demand for its
services, the Company began adding capacity to both its switch and its network
backbone in October 2001. The Company will also need to increase its terminating
capacity with third party carriers to process traffic outside of its own network
backbone in Mexico. Because some of these third party carriers experienced
network problems during August 2001, total revenues for the quarter ending
October 31, 2001 were not as high as the quarter ending July 31, 2001. However,
monthly revenues for both September and October 2001 returned to the same levels
experienced during the quarter ended July 31, 2001 resulting in the second
highest quarter of revenues in our history.

     Telco revenues (all revenues other than e-commerce) increased from $6.1
million to $11.4 million while e-commerce revenues generated by GlobalSCAPE
declined by approximately $183,000 between periods.

     Carrier services revenues increased approximately $5.3 million, or 146%
from the quarter ended October 2000 to the quarter ended October 2001. As a
result of the Company's effort to add capacity, the units transported via our
network more than doubled from approximately 45.4 million units during the
quarter ended October 2000 to approximately 93.6 million units during the
quarter ended October 2001. Additionally, our average price per unit increased
approximately $0.02 between periods.

     Network services slightly declined by approximately $43,000 or 6% between
periods. Our 800- service business declined between periods by approximately
$41,000. The decline is attributed to decreased volume of units transported via
our network. Units transported declined from 1.5 million to 1.2 million, period
to period. Our private network services remained relatively flat between
periods.

     Retail services revenues were also relatively flat between periods. Our
integrated prepaid revenues within Mexico increased approximately $206,000
between periods, but this increase was offset by the continuing decline in
postpaid, primarily operated-assisted service revenues. Our Mexico

                                       13



operations made strides to become more competitive in the products it offered
and evaluated its core business to strategically relocate communication centers
to concentrated areas where growth would be realized. As a result, our revenues
improved between periods. As for the declining operated-assisted services,
management does not expect postpaid revenues to contribute significantly to the
Company's operating results in fiscal 2002.

     Our Internet e-commerce services decreased approximately $183,000, or 13%
between periods. The expected elimination of advertising revenue accounted for
approximately $124,000, or 78% of the decline. As for the remaining decline, it
was attributed to an approximate 30% decline in CuteFTP site license sales
between periods. This decline, however, was partially offset by the sales of a
desktop web-site creation and management tool, and the introduction of CuteFTP
Pro. Additionally, other product sales, such as CuteHTML, CuteMAP, and CuteZIP,
increased between periods to contribute to the offset.

     Cost of Services. Cost of services declined slightly as a percentage of
revenue from 74% to 73%, period to period. Cost of services for e-commerce
slightly increased from 3% for the period ended October 2000 to 7% for the
period ended October 2001. This increase was a result of royalty expense being
recognized related to the distribution agreement with Trellix Corporation
announced on June 6, 2001. Cost of services as a percentage of revenues on the
Company's telco business decreased from 90% to 80% between quarters. During the
first half of fiscal 2001, the variable cost associated with our carrier
services product was a much higher percentage of revenues. In response to this
trend, management focused its efforts on improving carrier services margins. Two
key responses were the installation of Nortel Passport equipment, which allowed
us to increase the capacity of our packet-switching network backbone, and the
addition of alternate carriers of our traffic in Mexico, which allowed us to
lower our cost per unit for international traffic. Each alternate carrier offers
additional capacity to the Company, as well as lower variable costs of
transporting traffic into areas into which they have their own proprietary
network. As a result of the reductions in cost, improvement in the average price
per unit, and the improvements realized from the installation of the Nortel
Passport equipment, the Company recognized higher carrier service gross margins
during the quarter ended October 2001 than the quarter ended October 2000.

     Selling, General and Administrative (SG&A) Expenses. SG&A expenses
decreased approximately $1.4 million, or 27% between periods. SG&A expenses
associated with our e-commerce subsidiary decreased approximately $378,000, or
28% between periods due to the decline in expenses related to reduced
professional and printing fees associated with the filing of the Form 10 in
September 2000. Additionally, during the quarter ended October 2000, our
e-commerce subsidiary recognized approximately $152,000 of compensation expense
related to the granting of stock options as compared to approximately $12,000
during the quarter ended October 2001. SG&A expenses associated with our U.S.
and Mexico telco segments decreased approximately 26% or $1.0 million between
periods. This improvement resulted from management's efforts to cut excess
spending by each department. Also, during the quarter ended October 2000, telco
operations recognized significant expenses related to severance packages,
professional fees associated with the Genesis transaction, and strategic
research services.

     Bad Debt Expense. Bad Debt Expense declined by approximately 49% or $25,000
between periods due to the decline in the Company's postpaid call services
business between quarters.

                                       14





         Depreciation and Amortization. Depreciation and amortization slightly
decreased by approximately 2% or $24,000 between periods.

         Operating Loss. The Company's operating loss improved significantly by
approximately 65% or $2.9 million from the first quarter of fiscal 2001,
primarily due to increased revenues, improved gross margins on the Company's
core business, and reductions in selling, general and administrative expenses.

         Other Income(expense). Other expense increased approximately 159% or
$331,000 between quarters from $208,000 to $539,000 primarily due to two
factors. First, during the quarter ended October 2000, the Company recognized a
gain related to the extinguishment of a liability for approximately $184,000.
Secondly, during the quarter ended October 2001, the Company recognized
approximately $41,000 in losses related to foreign currency transactions
associated with our carrier business.

         Preferred Stock Dividends. During the quarter ended October 2001, we
recorded approximately $145,000 of non-cash dividends related to our cumulative
convertible preferred stock. This compares favorably to the approximately
$275,000 of non-cash dividends and approximately $612,000 of beneficial
conversion feature expense recognized during the quarter ended October 2000.

         Net loss to Common Stockholders. The net loss for the quarter ended
October 2001 improved by approximately $3.3 million to $2.3 million from the
$5.6 million net loss for the quarter ended October 2000. The improvement was
due primarily to a significant increase in revenues, which improved our gross
margin dollars. Additionally, the reduction in selling, general and
administrative expenses improved our net loss to stockholders between quarters.

Liquidity and Capital Resources

         During the quarter ended October 31, 2001, we generated positive cash
flows from operations of approximately $493,000. The Company was able to
generate this positive cash flow from operations by reducing the net loss
incurred during the period, shortening the cash conversion cycle of customer
receivables, and working with vendors related to payments. As a result, the
Company had the ability to operate with minimal assistance from private equity
placements or issuances of debt.

         For the quarter ended October 31, 2001, after adjustments for non-cash
items (depreciation and amortization, amortization of debt discount, deferred
compensation, provision for losses on accounts receivable and minority
interest), we had a net loss of approximately $964,000. Management of the
operating assets and liabilities, which consist mainly of collections on
accounts receivable and payments made on outstanding payables and accrued
liabilities, produced positive cash flows of approximately $1.5 million,
resulting in positive operating cash flows for the period of $493,000. By
generating positive cash flows during the quarter ended October 31, 2001, we
improved over the quarter ended October 31, 2000 by approximately $1.1 million,
or 175% in operating cash flows. Due primarily to the positive operating cash
flows produced during the first quarter of fiscal 2002, our net loss, after
adjustments for non-cash items, significantly improved over the quarter ended
October 31, 2000, when our net loss, after adjustments for non-cash items, was
$3.2 million.

         Although we were able to produce positive cash flows from operations
during the quarter ended October 31, 2001, we must produce positive cash flows
on a recurring basis, and reduce or eliminate our

                                       15



working capital deficit. Until that time, management will be faced with deciding
whether to use available funds to pay vendors and suppliers for services
necessary for operations, to service our debt requirements, or to purchase
equipment to be used in the growth of our business. Should our available funds
not be sufficient to pay vendors and suppliers, to service debt requirements and
purchase equipment, we will need to continue to raise additional capital. As
noted in the risk factors of the Form 10-K filed with the SEC on October 30,
2001, we have not always paid all of our suppliers on time. Some of these
suppliers are critical to our operations. These suppliers have given us payment
extensions in the past, although there is no guarantee they will do so in the
future.

         During the quarter ended October 31, 2001, the Company acquired
approximately $148,000 in equipment which was not financed through capital lease
or financing arrangements. Additional cash outflows included the payment of
approximately $169,000 towards our capital lease obligations and an additional
$43,000 towards note payables.

         In September 2001, we received cash proceeds, net of issuance costs, of
approximately $100,000 from the issuance of common stock as a result of an
investment option exercise. These funds along with the cash flows generated from
operations were used to pay down payable balances as mentioned above, to make
payments on our debt and capital lease obligations, and to purchase additional
equipment used in our network operations.

         Overall, the Company's net operating, investing and financing
activities during the quarter ended October 2001 provided approximately $236,000
in cash flows. The Company's working capital deficit at October 31, 2001 was
approximately $10.5 million. This represents an increase of approximately $1.2
million from the working capital deficit of $9.3 million at July 31, 2001. The
Company's current liabilities include a total of $5.9 million owed to NTFC
Capital Corporation and IBM de Mexico. The Company classified all amounts as
current under the note obligations due to being in technical default on both
notes. As such, each lender could call their notes as immediately due and
payable. The Company believes the lenders will not call the notes due to NTFC
expressing a desire to reset the covenants under the note in an effort to cure
past defaults and avoid future defaults, and IBM and the Company having limited
conversations concerning restructuring their note. Although the note terms or
covenants could be reset, we can give no assurances that the notes will not be
called. All scheduled payments have been made to NTFC as of October 31, 2001;
but the Company is approximately $1.2 million behind in payments to IBM.

         The Company's current obligations also include notes payable of
approximately $628,000, approximately $1.2 million owed to Northern Telecom for
the purchase of equipment during fiscal 2001, and approximately $500,000 owed to
the former owners of Grupo Intelcom, S.A. de C.V., the entity purchased by the
Company in July 2000 and through which the Company obtained its Mexican long
distance concession.

         We continue to focus on enhancing the capacity and efficiency of our
international network backbone between the U.S. and Mexico, adding alternate
carriers to transport our traffic outside of that backbone in Mexico, and
changing the mix of our traffic to better utilize our network capabilities. A
direct result of our producing positive cash flows from operations relates to
the Company's focus on its core revenue stream and reducing the cash conversion
cycle of its primary customers. To allow these trends to continue, the Company
needs to expand its network and switch capacity in order to provide additional
capacity to existing and potential customers.

                                       16




      The Company has limited availability to capital resources, and these
resources may not be available to support our ongoing operations until such time
as we are able to generate positive cash flows from operations. There is no
assurance we will be able to achieve future revenue levels sufficient to support
operations or recover our investment in property and equipment, goodwill and
other intangible assets. These matters raise substantial doubt about our ability
to continue as a going concern. Our ability to continue as a going concern is
dependent upon the ongoing support of our stockholders and customers, our
ability to obtain capital resources to support operations and our ability to
successfully market our services.

Inflation/Foreign Currency

      Inflation has not had a significant impact on our operations. With the
exception of retail services from our communication centers and coin operated
public telephones, almost all of our revenues are generated and collected in
U.S. dollars. Services from our communication centers and public telephones are
generally provided on a "sent-paid" basis at the time of the call in exchange
for cash payment, so we do not maintain receivables on our books that are
denominated in pesos. In an effort to reduce foreign currency risk, we attempt
to convert pesos collected to U.S. dollars quickly and attempt to maintain
minimal cash balances denominated in pesos. Some expenses related to certain
services provided by us are incurred in foreign currencies, primarily Mexican
pesos. The devaluation of the Mexican peso over the past several years has not
had a material adverse effect on our financial condition or operating results.

Seasonality

      Although it is not a significant portion of our overall revenues, our
postpaid services revenues are typically higher on a per phone basis during
January through July which is the peak tourism months in Mexico.

Market Risk

      We are subject to several market risks. Specifically, we face commodity
price risks, equity price risks and foreign currency exchange risk.

      Commodity Price Risk
      --------------------

      Certain of our businesses, namely carrier services, operate in an
extremely price sensitive and volatile environment. While we have been able to
withstand these pricing volatilities, certain of our competitors are much larger
and better positioned. Our ability to continue to operate in this environment
may be dependent on our ability to further reduce our costs of transporting
these minutes.

      Equity Price Risks
      ------------------

      Until such time as we are able to consistently produce positive cash flows
from operations, we will be dependent on our ability to continue to access debt
and equity sources of capital. While recent history has shown us capable of
raising equity sources of capital; future equity financings and the terms of
those financings will be largely dependent on our stock price, our operations
and the future dilution to our shareholders.

                                       17



      Foreign Currency Exchange Risk
      ------------------------------

      We face two distinct risks related to foreign currency exchange risk;
transaction risk and translation risk.

      As previously discussed under the caption "Inflation", we face risks
related to certain of our revenue streams, namely, retail services from our own
Mexican communication centers and payphones and the transacting of business in
pesos as opposed to U.S. dollars. Historically, we have been able to minimize
foreign currency exchange risk by converting from pesos to U.S. dollars quickly
and by maintaining minimal cash balances denominated in pesos. As we grow our
retail business in Mexico it is likely that we will face increasing foreign
currency transaction risks.

      Historically, we have recorded foreign currency translation gains/losses
due to the volatility of the peso exchange rate as compared to the U.S. dollar
over time. We anticipate we will continue to experience translation gains/losses
in our assets and liabilities, specifically in fixed assets which are accounted
for at historical pesos amounts on the books of our Mexican subsidiaries but
converted to U.S. dollars for consolidation purposes at current exchange rates.

PART II.  OTHER INFORMATION

ITEM 2.  CHANGE IN SECURITIES AND USE OF PROCEEDS

      In September 2001, the holder of the Series E Preferred Stock converted
350 of the 3,490 shares outstanding and accumulated interest into common stock
resulting in the issuance of 1,177,498 shares of common stock. In accordance
with the terms of the Investment Option of the Series E Preferred Stock, the
holder purchased an additional 493,422 shares of common stock for $150,000.
Proceeds from the investment option were used for working capital purposes.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      (a) Exhibits:

      The exhibits listed below are filed as part of this report.

Exhibit
Number
------
11    Computation of Earnings per Share (Exhibit to this Form 10-Q filed
      December 21, 2001)

      (b) Current Reports on Form 8-K.

          On December 18, 2001 the Company announced that its Board of Directors
          had approved the dismissal of Arthur Andersen LLP and the hiring of
          Ernst & Young LLP as its independent public accountants.

                                       18




                                    SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                            ATSI COMMUNICATIONS, INC.
                                  (Registrant)

Date: December 21, 2001                  By:    /s/ H. Douglas Saathoff
                                                -----------------------
                                         Name:  H. Douglas Saathoff
                                         Title: Chief Financial Officer

                                       19